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We have posted an update to this article: Click here to view the AG 49-B update


Cause for Concern with AG 49

Actuarial Guideline 49 (AG 49), which was implemented on Sept. 1, 2015 by the National Association of Insurance Commissioners (NAIC), imposes stricter restrictions on policy illustrations for indexed universal life insurance (IUL) products.

uliAs you may already know, IUL policies are tied to a specific stock index, such as the S&P 500, and provide returns based on market performance. Once the cash value has built up to a substantial level, the client can begin taking tax-deferred withdrawals for purposes such as retirement income supplement.

This mandate may have a significant impact on IUL sales within the industry. According to the Life Insurance Market Research Association (LIMRA), IUL sales drove overall universal life growth in 2015, with new annualized premium increasing 11 percent. Additionally, IUL sales represented half of all UL premium and 19 percent of all individual life premium throughout 2015.

However, “AG 49 will very likely slow innovation in IUL products,” according to Randy Kemnitz, a subject matter expert at Kaplan University. “Policies will now be illustrated based on their general account and not on the index used, in almost every case the numbers shown in an illustration will be lower.”

Based on projections, AG 49 is expected to keep maximum illustrated interest rates below 7% annually. One of the unintended consequences of this regulation is it makes it harder to determine which product will do a better job in providing future cash values, eliminating competition between carriers. the best fit.

The Numbers

For example, Company A may have a crediting rate with a 0% floor and 13% cap, whereas Company B has a 0% floor and 10% cap. By forcing both companies to illustrate at a lower crediting rate, it would appear that Company B’s IUL product is just as good as Company A’s; even though, the higher cap would provide a significantly higher crediting rate.

Using the data analysis engine GoFigureNow, we may compare the IUL products of these two hypothetical companies. A sample of 200 historical 20-year time periods was used in this analysis; Three of the 200 historical scenarios were selected - best, worst, and middle. The “best” had the highest ending account value while the “worst” had the lowest. The middle scenario ranked 100 out of 200; half of the historical time periods were better and half was worse.

With a point-to-point crediting method using the S&P500, the lowest, or “worst”, annualized return for Company A, over a 20 year period, was just over 7%. Using the same method Company B resulted in less than 5.75% as the lowest annualized rate of return. Based on this analysis, it is disingenuous to illustrate Company B’s product at the same crediting rate as Company A, however, AG49 prevents you from making a fair comparison.

The Guidelines of Actuarial Guideline 49

AG 49 now requires IUL policies to be illustrated to:

  1. Compute the maximum crediting rate for the illustrated scale based upon the arithmetic mean of the geometric average annual credited rates of the “Benchmark Index Account.”
  2. Limit the earned interest rate for the disciplined scale to either: (a) if the insurer hedges its obligations to credit interest based on an index, 145% of the annual net earnings rate of the general account assets allocated to support the illustrated policy; or (b) the annual net investment earnings rate of the general account allocated to support the illustrated policy.
  3. Include a new ledger based on a newly-adopted “Alternative Scale.”
  4. Limit the interest rate credited on policy loans (a) in an illustrated scale ledger to no more than 1% greater than the loan interest charged and (b) in the Alternative Scale ledger to no more than the loan interest charged. Include a table showing the highest and lowest of the geometric average annual crediting rates.
  5. Include a table showing actual historical index changes and corresponding hypothetical rates using current index parameters for the most recent 20-year period.


  1. Retrieved from: Life Health Pro; NAIFA speaker: NAIC’s AG 49 is bad news for indexed UL providers (http://www.lifehealthpro.com/2015/10/05/naifa-speaker-naics-ag-49-is-bad-news-for-indexed?eNL=5612ebab140ba0a76c3b33da&utm_source=LHPro_Daily&utm_me dium=EMC-Email_editorial&utm_campaign=10062015&_LID=141417859&t=life-products)

  2. Retrieved from: LIMRA; LIMRA Reports Individual Life Insurance Sales Increase 8 Percent in First Quarter 2015 (http://www.limra.com/Posts/PR/News_Releases/LIMRA_Reports_Individual_Life_Insurance_Sales_Increase_8_Percent_in_First_Quarter_2015.aspx)

  3. Retrieved from: Life Health Pro; NAIFA speaker: NAIC’s AG 49 is bad news for indexed UL providers (http://www.lifehealthpro.com/2015/10/05/naifa-speaker-naics-ag-49-is-bad-news-for-indexed?eNL=5612ebab140ba0a76c3b33da&utm_source=LHPro_Daily&utm_me dium=EMC-Email_editorial&utm_campaign=10062015&_LID=141417859&t=life-products)

  4. Report Generated by GoFigureNow: (http://www.gofigurenow.com/PDFFiles/IA870111411030304.pdf)

Post by Travis Pence
November 15, 2017